Markets are starting off a typically slow holiday week with a risk-on tone so far. As discussed recently in this space, equities are displaying an upward bias as we head into year's end as would-be sellers are waiting for the new tax year and underperforming managers are being forced to try to catch up.
Stocks finished last week on a positive note, with Friday giving us a couple of strong readings on consumer sentiment and housing. The final December results of the University of Michigan's Surveys of Consumers came in at 98.2, a 4.7% improvement from November, while expectations climbed 5% to 89.5. A rising index (same with The Conference Board's Consumer Confidence Survey mentioned below) can be interpreted as a greater percentage of respondents giving positive responses to survey questions than there were giving negative responses.
Historically speaking, the December results for the consumer sentiment index of 98.2 are the best reading since January 2004. The survey also showed that a large number of respondents had specifically mentioned future Trump policies as a reason for elevated confidence. Friday's data have been expanded on with new data from The Conference Board's Consumer Confidence Survey. The CCS also showed a jump in confidence for December, with its main index rising to 113.7 from 109.4 in November. The December reading is the best print since December 2003.
The broad rise in consumer sentiment readings parallels the positive sentiment that we've been seeing in the post-election run-up in equities. Markets, investors and people in general have a lot riding on Trump delivering significant economic reform. Should those reforms fail to materialize, then everything that has run up on Trump could certainly come falling down. We will really have to stay vigilant on the data for any possible Trump shortcomings. For now, though, the data are giving stocks a green light to run higher.
Friday also gave us a very strong new residential sales (NHS) report for November. New home sales were up 5.2% from October and 16.5% from last year. While NHS are roughly about 10% of total home sales, they are still significant. Incorporating data from existing home sales (EHS) with NHS, we know a shortage of inventory and high prices are keeping transaction growth down. In terms of prices, we just got data this morning from the S&P Corelogic Case-Shiller HPI that showed 5.6% annualized growth for October, which was up .2% from September. The Case-Shiller data are a well-respected and thorough housing-market gauge.
Looking at all the transaction and pricing statistics we have gotten recently and what we are hearing out of the homebuilders themselves, there is no question that the housing market is strong and poised to remain that way for quite some time as demand remains high. With such a large component of the economy running strong into 2017, it's not much of a leap of faith that the broader economy can outperform as well.
The Dow is really trying to make it over 20,000 this morning, even with rates moving higher on the back of positive housing and consumer data and an overall positive market sentiment from news showing that the Italian banking crisis seems to be under control for now. Again, rising rates are not to be feared and are a welcome occurrence as markets normalize in a post-QE world. We've had bull markets with significantly higher rates before, so it can happen again.